Philadelphia Fed non-manufacturing index snaps back to 7.4, first positive reading since October 2024

After months of contraction, the Philadelphia Fed’s nonmanufacturing sector just did something it hasn’t done since October 2024: post a positive reading.

The regional general activity diffusion index jumped to +7.4 in July, up from a deeply negative -25.8 in June. That’s a swing of more than 33 points in a single month. For context, this index measures whether service-sector firms in Delaware, southern New Jersey, and eastern and central Pennsylvania are expanding or shrinking. Anything above zero means more firms are growing than declining.

The numbers behind the rebound

Firm-level general activity climbed to +17.5 from +2.4 the prior month. Among surveyed firms, 27.8% reported increases in activity while just 10.3% indicated declines.

New orders came in at +12.5, suggesting demand is picking back up across the region’s service economy. Sales and revenues were even stronger, with that index hitting +23.5.

The labor market data told a similar story. Full-time employment flipped positive at +12.4, and part-time employment wasn’t far behind at +12.1.

Not everything in the report was sunshine and optimism. The prices paid index registered +28.2, while prices received came in at +18.4. Both readings indicate net increases, meaning businesses are paying more for inputs and passing some, but not all, of those costs along to customers.

Why this matters beyond Philadelphia

The Philly Fed’s nonmanufacturing survey, formally called the Nonmanufacturing Business Outlook Survey (NBOS), covers a region that roughly mirrors mid-Atlantic economic conditions. Responses for the July reading were collected between July 6 and 16. The last time this index was in positive territory was October 2024, meaning firms spent roughly nine months in contraction or near-contraction mode.

Perhaps the most telling number in the entire report is the forward-looking one. Future firm-level activity expectations surged to +41.9.

What this means for investors

Prices paid at +28.2 means inflationary pressures haven’t gone away. If inflation remains sticky while growth returns, the Fed finds itself in a familiar bind: cut rates to support growth and risk stoking prices, or hold firm and risk choking off a nascent recovery.

One risk worth flagging: the magnitude of this swing, from -25.8 to +7.4, is so large that it raises questions about sustainability. Investors should watch the August reading closely to see whether July’s optimism holds or fades.

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